It Cost $450k to be Snoop Dogg’s Virtual Neighbor | How Not to Buy the Top of the Market

Land, land, land. There’s been a boom in physical and digital real estate as buyers clamor to exercise their Fifth Amendment Right to Property. Physical real estate has been around for ages so it’s a bit easier to understand, but is digital real estate (or NFT digital land) the same thing, but virtual?

This guy spent a whopping $450k to be Snoop Dogg’s virtual neighbor and he isn’t the only one. Nike, Adidas, Facebook, and many other big names are getting in as well. Now you’d be right in asking yourself if this is a good investment opportunity and a good way to dive into web3.

Credit to Nike

By the end of this article, you’ll have learned how to avoid past mistakes and be one of the few that has a real chance at striking gold in the NFT land marketplace.

What Exactly is Virtual Land and Why is it Worth So Much?

A quick Google search will give you pages of articles saying pretty much the same thing as they do at Binance Academy; it gives you ownership of land on a metaverse platform which you can use to create content such as:

• Advertising
• Socializing
• Gaming
• Workspaces

Getting in at the beginning feels like you’re getting a bargain deal like the US did in 1803 in the Louisiana Purchase at a whopping 3c per acre, which kicked off America’s Westward Expansion.

This 12 minute video from CrashCourse gives a fantastic summary, I’d suggest a quick watch!

Sounds familiar right? The metaverse has just opened and everyone has the chance to buy a piece and take part in the boom of our generation.

Just like making a real estate purchase, it’s important to step back and assess the value of the property. We have to ask ourselves, who makes money and who ends up failing? Not everyone that joins will make it big.

Why The History Lesson?

So what’s up with the history lesson, we’re talking about NFTs, not farming and mining right? Winston Churchill said, “Those who fail to learn from history are doomed to repeat it”. Learning about the successes and mistakes of the past can help guide us when navigating new concepts.

Taking a look at past markets is going to tell us if this is the right market to invest in, who makes money, and who gets screwed.

Let’s Pick Up a Shovel and Dig In

The metaverse is no doubt an exciting place where big brands and celebrities have staked their claim:

• Facebook (now Meta 🙄) Enters the Metaverse
• Nike and Adidas Start Developing in Web3
• Snoop Dogg’s Mansion 😎
• Sports Stars and Other Celebrities Buy Islands

If all this big money is pouring in, there must be an opportunity to make money, but let’s find out who’s actually making the big bucks.

Who Makes Money?

The promise of riches isn’t new.

In the California Gold Rush (”CGR”), there was $2 billion worth of precious metals extracted, including ~750,000 pounds of gold.

Only the ones that were there first made money. Later on, it was dominated by medium to large sized organizations. In fact, most individuals ended up working wage jobs just like they did back East (nowhere near the riches they dreamed of).

Credit to Western Mining History

While the gold was the focus, those who ‘mined the miners’ were the ones rolling in riches.

Levi Strauss famously made his fortune from selling jeans and dry goods to miners.

Sam Brannan set up supply stores and sold $36,000 in equipment over the next seventy days (about $950,000 in today’s figures).

Even onion farmers and deliverymen made 6-figures in today’s figures.

Credit to Jennifer Linton

From this angle, owning NFT land in the metaverse actually makes a lot of sense in 2 situations:

1. You are looking to build a service or sell products to a metaverse with a lot of demand.
2. You are one of the first to own followed by increasing demand.

That’s exactly what Nike, Adidas, Gucci, and many other big brands have done — they got in first and are building goods and services that people in the metaverse are going to want and need.

Assessing the Metaverse

This is where things start to get a little complicated. Location during the CGR was clear; the gold was in California so buying property there and operating a business was lucrative. The metaverse is not as cut and dry.

Credit to Unit 2 Games Limited

Which metaverse should you buy in? These metaverses are not interoperable and there don’t seem to be any plans to make them cohesive. Sandbox vs. Decentraland vs. Axie Infinity; where are people going?

Businesses followed people and not the other way around. These businesses weren’t built before the people rushed in, they built there when they saw people swarming to the state.

Daily Active Users

Demand is going to be the driving factor for digital land. Daily active users and user engagement are key figures will tell you how much demand there is for what each metaverse is offering; there’s no point in building a business if there’s no one to buy the goods.

As of April 6, 2022, there are ~100k, 1.2k, and 1k DAU in Axie, The Sandbox, and Decentraland respectively according to CoinDesk. In comparison:

• Larger web2 games have upwards of 500k DAU.
• In the CGR, the population grew from 26k in 1849 to 380k by 1860, which we can consider DAU of the goods and services businesses were selling.

Credit to CoinDesk

In this respect, the user engagement we’re seeing in these metaverses just doesn’t measure up. Not to mention, physical real estate is much stickier as it is much more costly to physically move locations while it is currently easy to stop using one metaverse vs. another.

Value of Land

While it’s difficult to compare exact figures to the past due to incredible shifts in how goods and services are valued, we can look at growth.

• Before the CGR, land values were less than a penny per acre.
• During the rush, property grew 25x to ~25c per acre by 1850.
• Afterwards, value crashed 60% to ~10c per acre.

Credit to nft now

NFT land has carried a high value since initial mints. BAYC’s land sale netted a cool $300 million! Other metaverse land mints usually carry similarly high price tags. Before investing blindly into one of these mints, it’s important to ask yourself these questions:

• Is there an active user base that makes my land valuable?
• Is there anyone that would rent my land to make a good or service for the user base?
• Is demand constantly outstripping the supply of resources?

Right now, my answers would be no, no, and no. Stats on The Sandbox and Decentraland show that there isn’t a surge in users or demand for land. You can make a scene for users to browse, but there isn’t a draw that’s akin to gold in the 1800s.

Speculation

If there’s currently very little demand on the platform, then why are prices getting bid up so high? The only reasonable explanation would be speculation. Investors believe in future growth and are willing to pay high prices now because:

• Ownership of land allows the owner to build various projects in the metaverse including casinos, games, advertising spaces, fashion runways, etc.
• Some NFT land projects promise future Airdrops such as tokens or NFT whitelists.

But remember, who will these land owners build for? If there’s no user base, then where does the income come from?

Credit to Times Record

In fact, it seems to me that the ones doing the land sales are the ones that are ‘mining the miners’ with these mints. @0xBender has a great thread analyzing BAYC’s land sale and their potential intentions.

Takeaways

NFT land does indeed carry endless exciting possibilities in the way it can develop and the people it can attract. But to extract value from the property, there needs to be a user base that demands goods and services in the (or a) metaverse. Investing now without a solid base is an extremely high risk investment that one should definitely be prepared to take losses on.

Here are the criteria I think we’d need to fulfill before this becomes an investable opportunity:

• Large, growing, and engaged user base.
• Well-built infrastructure which will enable users to onboard in troves (~10% of the population now uses any form of crypto).
• Clear designation of which metaverses have recurring active users.
• Clear need for goods and services that will require land.
• A way to accurately assess an ROI on the land, which will typically require the previous 3 points.

There aren’t currently any web3 projects that meet these criteria and investing in something just because it’s down is not a sustainable strategy. We’ll be keeping a close eye on user growth in metaverses to see if this changes, but for now, we’re staying East.